Vanke Board Report Vetoed by Two Biggest Shareholders in Spat

  • Shenzhen exchange sends inquiry to China Resources, Baoneng
  • Baoneng seeks EGM to remove 10 directors from 11-member board

Two of China Vanke Co.’s major stakeholders, opposed to a $6.9 billion stock-sale plan by the developer, voted against the company’s 2015 board and supervisory committee reports at the annual general meeting, escalating an ownership tussle.

China Resources (Holdings) Co., Vanke’s second-largest shareholder, and units of the biggest, Baoneng Group, voted against the 2015 reports by the board and the supervisory committee, a Tuesday filing to the Shenzhen Stock Exchange showed. With opposition from the two investors, which together hold 39.59 percent of Vanke’s total shares, the developer’s reports only got 37.7 percent supporting votes from shareholders and shareholder representatives who attended the developer’s AGM on Monday in Shenzhen, the filing showed.

Vanke has been embroiled in a battle for control for more than six months and faces potential management changes after long-term major shareholder China Resources and Baoneng both said they opposed Vanke’s $6.9 billion stake sale to Shenzhen Metro Group that would make the rail operator Vanke’s largest shareholder. The plan, which faces almost-certain failure in its current form, is largely seen as a way for Vanke to fend off a takeover by Baoneng, an obscure conglomerate until it displaced China Resources as the developer’s largest stakeholder last year.

Shenzhen Jushenghua Co. and Foresea Life Insurance Co., the two Baoneng units, also voted against Vanke’s 2015 audited report, according to the filing. Shareholders holding 57.9 percent of the company’s total shares attended the meeting.

Exchange Inquiry

The surprise voting drew the attention of the Shenzhen Stock Exchange, which has asked the two major shareholders whether they acted in concert. The southern Chinese bourse sent notices to Jushenghua and state-owned China Resources asking them to explain if they or their affiliates reached an agreement on how to increase the number of voting rights for Vanke, according to letters posted on exchange’s website. Jushenghua and China Resources should send a written response by June 29, the exchange said.

Baoneng last week requested an extraordinary general meeting aimed at removing almost all board members, including Vanke’s Founder and Chairman Wang Shi. The board has 10 days from receiving the document to decide whether to convene a shareholder meeting, Vanke said earlier.

The current board has three members from Vanke, including Wang and President Yu Liang, and has a tenure until March 2017, according to an earlier filing from the developer. Baoneng has no representative on the 11-member board.

Both Wang and Yu, widely viewed as Wang’s successor, said in an online webcast of Vanke’s AGM Monday that whether they stay or leave is not as important as continuing the company’s corporate culture. The interest of Vanke’s shareholders and related parties won’t be guaranteed if ordinary employees choose to leave the firm, Yu said.

‘Powerless’ Management

The company’s management felt "powerless" and was under “mounting” pressure, Yu said. The ownership tussle prompted banks and rating companies to “seriously” review the company’s credit risks, Yu told the AGM. Some projects and contracts are at risk of termination, while some external partners are negotiating terms amid concerns about the business’s future, he added.

If Baoneng succeeded in removing the company’s senior management team, Vanke’s property sales and potentially its access to funding will be interrupted, Kaven Tsang, a Hong Kong-based senior analyst at Moody’s Investors Service, wrote in a note Tuesday.

Shares of Vanke traded in Hong Kong fell 2.2 percent to HK$15.70, the lowest in four months, at the midday break Monday, bringing the year-to-date decline to more than 30 percent. Vanke’s A shares traded in Shenzhen have been suspended since Dec. 18.

— With assistance by Emma Dong

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